Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2005:27: The Problem of Cooperation and Reputation Based Choice

Andreas Bergh () and Peter Engseld
Additional contact information
Andreas Bergh: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Peter Engseld: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: The standard method when analyzing the problem of cooperation using evolutionary game theory is to assume that people are randomly matched against each other in repeated games. In this paper we discuss the implications of allowing agents to have preferences over possible opponents. We model reputation as a noisy observation of actual propensity to cooperate and illustrate how reputation based choice of opponents can explain both the emergence and deterioration of cooperation. We show that empirical and experimental evidence of cooperation is consistent with our hypothesis that people behave so as to minimize the risk of damaging their reputation as nice, cooperative persons.

Keywords: Cooperation; Prisoners Dilemma; Signaling; Reputation; Altruism; Institutions

JEL-codes: C70; C90

20 pages, First version: April 28, 2005. Revised: May 4, 2006.

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